When the digital cryptocurrency, Bitcoin, gained awareness during the recession almost 10 years ago as a way of alternative currency of transaction, it was mostly unnoticed other than by a few groups of programmers, mathematicians and researchers. Fast forward to March 2018, Bitcoin is valued at about $150B in Market cap and the overall crypto market at approximately ~$350B.

This post is suitable for beginners and isn’t going to cover the hundreds of crypto currencies available out there or the exchanges or the trading aspects of the crypto market. Beyond the industry buzz, overwhelming press coverage of global crypto phenomenon known to most people, a overwhelming majority have a limited understanding of cryptocurrencies. Let’s look at some of the basic concepts, terms and jargons used in the bitcoin or digital currency world in this post.

Bitcoin: It’s a type of digital cryptocurrency and the first of its kind. Unlike physical currencies of today whose transactions are managed by banks, Bitcoin is a decentralized currency and transaction takes place between users directly without an intermediate party. One of the reason, this concept gained traction is because of its fault tolerance, stemming from collapses of financial institutions during the 2008 recession.

Mining: Mining comes into play on two occasions. One to create digital coins as a reward, aka, releasing the new currency and the second reason is adding transactions to the blockchain.

Miners: They are individuals or groups running the digital currency / blockchain software in a distributed network of individual computers. Miners receive digital copies of transaction for verification and they compete to turn the latest transactions into a block and get rewarded.

Mining Rig: Computers designed for processing blockchains and they usually consists of multiple high end graphic processors (GPUs) to maximize processing power.

Blockchain: Blockchain is the underlying revolutionary technology of all cryptocurrencies and will influence and change the human life as we know it. It’s a digital, decentralized and shared online ledger that records every transaction – whether someone buy, sell or transfer digital coins, or pays for goods or services with the virtual coins. These transactions are recorded and processed without a third party or a financial institution like banks to eliminate central points of failure or cyber attacks and is heavily encrypted involving private and public keys – similar to the two key systems used to access the safety deposit box.

Each blockchain (global ledger) is distributed as in it runs on computers around the world and there is no central database to hack and it’s public, a worldwide global ledger that anyone can download and run on their machine. Another significant difference or advantage over the current networks is the faster ability to process transactions (cross border payments) and while banks have traditional business hours and are closed over the weekends, validation on blockchain transactions occur 24×7.

Block: Block is like a page in a ledger where group of transactions related to the network is permanently stored in a chronological order. It includes information on most recent transactions that have not yet entered any prior blocks. When a block is completed, it paves way to the next block in the blockchain.

Fork: When a blockchain splits into two separate chains, a fork is formed. It’s a permanent bifurcation from the previous version of blockchain and any nodes that contain older version will be invalid. The new path follows the upgraded software path and the other one, continues down the outdated older path eventually realizing their version is not current and quickly upgrade to the latest version.

Node: A node is a computer in a crypto network and it typically has a copy of blockchain and is working to maintain it.

Node Vs Miner: While they both are similar there are key differences in terms of what they can do on the network. Miners are nodes. There can be a node without being a miner, but miners can’t mine on their own unless they are also a node. Miners are unique nodes that have a say in what gets added to the network.

Each node verifies every transaction and block that it receives and if it is valid, it stores the transaction or block and relays the information to all other nodes that are connected to it. If it’s invalid, it will be discarded and not shared with other nodes.

The action that miners perform distinguishes them from the nodes in that Miners choose what valid transactions gets added to the block. They perform a proof-of-work to build a valid block. They will not create a block that breaks the consensus rules but they will be able to enforce any additional non-consensus rules if a majority of the miners (over 50%) agree to do so.

PoW (Proof of Work): It’s a blockchain algorithm that governs how transactions are verified on the decentralized network. In this model, miners compete to solve a block and try to get accepted into the blockchain network to earn that reward.

PoS (Proof of Stake): It’s also a blockchain algorithm that governs how transactions are verified on the decentralized network. In PoS (Proof of Stake) model, the creator of a block is chosen in a way that is based on its wealth, aka, stake. There is no block reward in this model and instead the miners take the transaction fee.

Forger: Forgers are users who validate transactions and create new blocks in the blockchain using the Proof of Stake system (PoS). To simplify, what “Miners” in proof of work (PoW) system are “Forgers”, “Validators”, or “Minters” in proof of stake system.

Wallet: It’s a place to store, receive and send digital coins, similar to a bank account.

Cold Storage: Instead of storing the digital assets with an online exchange or a third-party wallet, cold storage is a method of keeping your cryptocurrencies in an offline mode as a way of  protecting from online hacking. What it does is, stores the virtual coin’s private keys in an offline mode, away from the internet, which could be vulnerable.

Hash: It’s a random sequence of alphanumeric value of fixed length that uniquely identifies the data. Miners try to narrow down on a very hard to find hash value and whoever is the first to crack it, will be rewarded with the digital coins and the block will be added to the blockchain.

ICO: Initial Coin Offering is similar to IPOs (Initial Public Offering). Much like IPOs, ICOs offer a stake of the company to raise capital in the form of exchanging against other cryptocurrencies. ICOs are often used to fund the development of other digital currencies and they can be sold and traded of exchanges based on the demand.

Token: It’s somewhat a loose definition in Crypto world as it could mean a currency token (indicative of the value of money), security tokens (encrypted data generated by complex algorithms as a stand-in for the original data), or to describe altcoins. It’s a general term used to describe a digital asset. All tokens are regarded as cryptocurrencies even if most of the tokens or coins do not function as a currency or medium of exchange.

Altcoin: It’s an cryptocurrency alternative to Bitcoin. A majority of altcoins are derived from Bitcoins through forking, paving way for new coins with their own set of features that are different from its source.

The main difference between altcoin and token is in their structure – Altcoins are individual currencies with their own separate blockchain and tokens aren’t an individual currency of their own and they operate on top of a blockchain to facilitate creating decentralized applications.

Sharding: When a very large database is partitioned in to a smaller, faster and easy to manage parts, that’s sharding. In blockchain context, instead of all the nodes on a network storing transactions and processing them, a small subset of nodes will validate and process every transaction without forcing all the nodes to store large volumes of data.

Exchange: It’s a digital marketplace to trade cryptocurrencies. Typically, these exchanges offer an online platform for traders to buy and sell digital coins for a fee.